Planalytics Q2 & BTS Webcast

WEBCAST2016 Back-To-School Outlook

© 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.2

1. Overview – Retail Sales Looking Brighter for Back-to-School

2. 2Q Update – Earnings Scorecards; Consumer Discretionary Leads Growth

3. July Same-Stores Sales Somewhat Mixed

4. Back-to-School Drives July Traffic to Best Month of Calendar Year

5. Back-to-School Outlook; Solid Forecast, Room for Upside

6. Category Spend; School Supplies and Clothing Highest Growth

Agenda

7. Finding Dollars in New Places

8. Where Consumers Plan to Shop – Discount Stores & Online

9. Shopping and Advertising Starting Earlier

10. Fashion Trends

11. Calendar Impact

12. 2016 Second Half Predictions

13. Macro Outlook


1. Overview – We Expect Better BTS Sales After Below Average Season Last Year

• Total BTS spending to reach near-record levels

- Fung Global Retail & Technology expects back-to-school sales (July & August) to rise 2%-3% this year, compared to 0.4% last year

- Families have more kids in school thanks to the large generation of Millennials who are parents of school-age children

- Families are expected to spend the same or more than last year according to the NRF

• Consumer purchase mentality—What do we need now? BTS shoppers plan to shop and research earlier in 2016

- Target reacts by adopting an early-July back-to-school rollout in physical stores

- Online advertising starting earlier: Home Depot, Lowe’s and Amazon, Costco, Sam’s Club

• Favorable Macro Backdrop; Spending Remains Steady

- Wage growth picking up

- Labor marketing standing firm


• Earnings Growth: 86% of companies in the S&P 500 have reported 2Q 2016 through 8/5; the blended earnings decline is 3.5%

• Consumer Discretionary reporting highest earning’s growth at 10.7%, driven by Internet Retail (+86%), and Household Durables (32%)

• Consumer Discretionary sector are reporting the 2nd largest (behind Information Technology +7.2%) upside vs. estimated earnings(+6.9%)

Source: FactSet Research Systems 2016

S&P 500 Revenues S&P 500 Earnings Consumer Disc Revenue Consumer Disc. Earnings0%

25%

50%

75%

100%

54%69%

33%

71%

46%

19%

67%

17%

12% 12%

Above In-Line Below

2. 2Q Update – Earnings Scorecard; Consumer

Discretionary Leads Growth

Q2 2016 Earnings and Revenues Versus Estimates


• Among apparel retailers, L Brands and Zumiez outperformed

- L Brands reported 2.0% SSS, above its 0.4% estimate

- Bath & Body Works coms were up 6%

• U.S. Costco traffic was up 3.5% in July, fairly consistent with prior months

- Independence Day holiday shift negatively impacted comp sales by 2.5%

• Gap reported a decline of 4.0%, driven by challenging store traffic in May and July

Source: Company Reports

Same-Store Sales (%)

July 2016

Actual

July 2015

July 2016 Est.

MASS MERCHANTS

Costco Wholesale (2.0) 0.0 (1.8) Costco US (3.0) 3.0 Costco Canada 3.0 N/A Costco International (2.0) (10.0) Costco Wholesale (ex fuel) 1.0 7.0 Costco US (ex fuel) 0.0 7.0 Costco Canada (ex fuel) 6.0 N/A Costco International (ex fuel) 2.0 7.0 0Fred’s (4.6) 0.7 0.0SPECIALTY APPAREL STORES 3 0 3

Buckle (10.9) (8.1) (3.9)Cato (10.0) (1.0) (1.0)Gap (4.0) (3.0) (1.0) L Brands 2.0 3.0 0.1 Victoria’s Secret 0.0 1.0 Bath & Body Works 6.0 5.0 Zumiez (2.9) (7.6) (5.0)

3. July Same - Store Sales Somewhat Mixed


• Foot traffic dropped (5.8%) in July, which was the lowest monthly YoY drop this calendar year

• Despite hot weather and more than a bit of political uncertainty, Back-to-School shopping began to stem declines in store traffic

• Conversion rate has increased for the 7th consecutive month

• While conversion was up 0.1%, the average transaction value (ATV) was down 1.6%, dropping sales per shoppers (SPS) 1.2% and negatively impacting overall sales

Source: RetailNext

Monthly Sales and Traffic YoY%

Traffic Conv. ATV SPS Tran. % Return

July -5.8% 0.1% -1.6% -1.2% -5.7% -0.2%

June -8.9% 0.6% -2.4% 0.7% -6.0% -0.1%

May -9.9% 0.6% -2.5% 1.6% -6.1% -0.1%

April -6.5% 0.2% 1.3% 3.1% -4.7% 0.0%

March -9.7% 0.4% -0.7% 2.2% -7.0% -0.1%

4. 2Q Update – Back-to-School Drives July Traffic to Best Month of Calendar Year


• Fung Global Retail & Technology expects back-to-school sales (July & August) to rise 2%-3% this year, compared to 0.4% last year

• This is slightly below the average increase of 3.8%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E-10%-8%-6%-4%-2%0%2%4%6%8%

10%

YoY % Change Avg. Change 2016 Est.

Source: US Census Bureau and FGRT Estimates

5. Back-to-School Outlook – Solid Growth Forecast; Room for Upside

Back To School Sales Growth – 1993-2016E


• National Retail Federation(NRF) combined Back-to-School/Back-to-College (BTS/BTC) spending to rise 11.5% in 2016 to $75.8 billion

- Average BTS family is forecasted to spend $673.57, up 6.8% from last year

- College plans to spend $888.71, a 1.2% decrease

- But, total college spend will rise 12.5% due to an increase in BTC consumers

• Deloitte expects parents will spend $488 on BTS items for their children this year, up 12.4% from last year

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E$520

$540

$560

$580

$600

$620

$640

$660

$680

$700 $673.6

5. NRF and Deloitte Predict Positive Uptick

Total BTS per Household


• eMarketer sees e-commerce sales growth of 15.3% to $65.42 billion in BTS months

- 7.9% of total retail sales for the period, up from 7.0%

- In-store shopping continue to dominate back-to-school season

• Mobile shopping, continues to expand with nearly 35% of BTS shoppers planning to purchase online

• NRF revised full-year e-commerce sales forecast; expects e-commerce sales up 7%-10%, compared to prior forecast for a 6%-9%

2012 2013 2014 2015 2016E5%

7%

9%

5.10%

7.90%

Source: eMarketer

5. Online Sales to Drive Additional Growth

US Retail E-Commerce BTS: % of Total Sales


• 87% of parents intend to spend the same or more compared to last year

13%

32%55%

Expect to spend less

Expect to spend more

Expect to spend the same

Why do you plan to spend “more”?

Why do you plan to spend “less”?

1. Children need more items2. Children need more expensive

items3. Prices are generally higher

1. Children need fewer items2. Household has less money3. Fewer children in grades K-12

Source: Deloitte SurveySample size (N)=1200

5. Household Spending Levels; Families to Spend More than Last Year


• Clothing and accessories, the largest category, is expected to represent 34.9% of total BTS sales.

- Dollar spend is up 8.1% year over year• School supplies is projected to represent 16.0% of total BTS sales

- Dollar spend is up 10.3% year over year

BTS 2015 2016E YoY%

Change

Total ($B) 24.9 27.3 9.6%Total per household

(USD) $630 $674 6.9%

Spend per Household by Category 2015 2016E YoY%

Change

Shoes 117.56 126.55 7.6%

Clothing 217.82 235.39 8.1%

School Supplies 97.74 107.76 10.3%

Electronics 197.24 204.06 3.5%

BTC 2015 2016E YoY% Change

Total ($B) 43.1 48.5 12.5%Total per household

(USD) $899 $888 -1.2%

Spend per Household by Category 2015 2016E YoY%

Change

Shoes 78 73 -6.2%

Clothing 139 137 -1.3%

School Supplies 75 67 -10.8%

Electronics 244 207 -15.0%

Source: NRF and Prosper

6. Back-to-School – Category Spend; School Supplies and Clothing Highest Growth


• Category spend planned for 2016 back-to-school season• Most Shoppers will spend their budget on clothing and accessories

and electronics

• 96% plan to buy school supplies

• Average spend $107, up 10.3%

• Hot items: books, backpacks

• 95% plan to buy Clothing & Accessories


• Hot items: Jewelry, handbags

• 57% plan to buy Electronics


• Hot Items: computers, tablets, wearable tech

• 94% plan to buy shoes


6. Category Spend; Most Dollars Spent on Clothing and Electronics



7. Finding Dollars In New Places

• Retailers and suppliers finding new strategies to boost spending for BTS season

• Merchandise tie-ins - “Finding Dory Back to School Collection” to

increase appeal of everyday back-to-school items

• Discounters are offering minimum spend discount - Spend $20 and save $5

- encourage larger baskets

• In-Store experience- JCPenney locating fixtures stocked with the

merchandise featured on the mannequins directly adjacent to mannequins

- Shoppers can assemble complete outfits by shopping the fixtures Source: NRF and

Prosper


• Discount Stores (61%) and department stores (59.6%) are historically the two largest shopping destinations for BTS shoppers

- Discount Stores at lowest level in survey history

• Online shopping has seen a dramatic jump – nearly 30% increase year-over-year

Discou

nt Stor

e

Depart

ment S

tore

Clothing Stor

eOnlin

e

Office Supplier

s Stor

e

Electr

onics

Store

Drug Store

Local/

Small Bus

iness

Thris

t Stor

e/Resa

le Shop

Catalog

62%56% 54%

36% 36%

22%14% 13% 13%

7%

61% 60%51%

46%39%

22%17% 16% 12%

6%

2015 2016

8. BTS Where Consumers Plan to Shop – Discount Stores Top Destination, Online Continues Strong Growth

Where Consumers Plan to Shop for BTS



• Consumers to take advantage of back-to-school sales, spreading out their budgets and avoiding last-minute crowds

• More shopping in July than LY and fewer shopping in September

- 26.1% plan to shop at least two months before school vs 19.9% LY

- While 33.8% plan to shop three weeks to one months before school starts vs 42.8% LY

• August remain the most popular time for back-to-school shopping

22.2

50.9

22.1

2.7 2.1

2 or More Months Before School Starts

3-4 Weeks Be-fore School Starts

1-2 Weeks Be-fore School Starts

After School Starts

The Week School Starts

26.1

33.8

25.1

6.48.5 2 or More

Months Before School Starts3-4 Weeks Be-fore School Starts1-2 Weeks Be-fore School StartsAfter School Starts

9. Back-to-School – Consumers to Shop Earlier This Year; August Wins

When Consumers Plan to Start BTS Shopping

When Consumers Plan to Start BTC Shopping


• All retailers are participating in promotional activities across platforms - In-store - On-line- Social media- Mobile

= with BTS campaign = no BTS campaign

Source: Fung Global Retail & Technology, as of 8/1

9. Online Advertising & Promotions Starting Earlier than Ever


• Seventeen Magazine predicts sleeker looks for the Fall.

10. Back-to-School 2016 Fashion Trends


September 2015

Labor Day: September 7

Public Schools Open: September 9

Rosh Hashanah: September 13-15

September 2016

Labor Day: September 5

Public Schools Open: September 8

Rosh Hashanah: October 2-4

Su Mo Tu We Th Fr Sa

1 2 3 4 5

6 7 8 9 10 11 12

13 14 15 16 17 18 19

20 21 22 23 24 25 26

27 28 29 30

Su Mo Tu We Th Fr Sa

1 2 3

4 5 6 7 8 9 10

11 12 13 14 15 16 17

18 19 20 21 22 23 24

25 26 27 28 29 30

• Neutral calendar impact

11. Calendar Impact


• Fashion at a value price will be a winner in second half of 2016

- Products hovering on deflationary pricing

- further bifurcation of the retail market

• The Weinswig Hourglass thesis:

- Consumer spending gravitating to the top and bottom of the hourglass

• Outlets and off-price retailers gain more BTS shoppers

- Macy’s Backstage

- Nordstrom Rack

The Weinswig Hourglass

Neiman MarcusSaks

The RealRealNordstrom

Kate Spade, Coach, Michael KorsBloomingdale’sAnthropologie

CostcoBJ’s - Sam’s Club

Chico’sLord & Taylor

Macy’s - Dillard’sJ.Crew, Banana Republic, Urban Outfitters

White House Black Market - Ann Taylor - Abercrombie & FitchFoot Locker - Finish Line

Ann Taylor Loft - JCPenney - Kohl’sKroger - Safeway - Supervalu

BurlingtonBuckle - Hollister

American Eagle - ExpressGap

Old Navy - Carter’s - Children’s PlaceCVS - Walgreens

T.J. Maxx - Marshalls - Home Goods TargetSearsH&M

Ross StoresWalmart

Nordstrom Rack – Macy’s BackstageAldi

Dollar Stores ThredUP

12. Who Will Benefit in Second Half of 2016?


Source: Energy Information AgencyBureau of Economic AnalysisBureau of Labor Statistics

Indicator Period 2016 2015 YoY change

Impact on Consumptio

n

GDP Growth Q2 1.2% 3.9% (270 bps) -Gas Price ($ per gallon) Aug. $2.15 $2.63 (18.2%) +Consumer Price Inflation Jun. 1.1% 0.2% 90 bps +Savings Rate Jun. 5.3% 5.8% (50 bps) +Unemployment rate Jul. 4.9% 5.3% (40) bps +Wage Growth Jun. 3.6% 3.2% 40 bps +The S&P/Case-Shiller 20-City Composite Home Price Index May 188.3 178.9 +5.2% +University of Michigan Consumer Sentiment Jul. 90.0 93.1 (3.3%) -

Tax-Free Shopping Days Q2/Q3 54 63 (14.2%) -

13. Overview: Favorable Macro Backdrop; Spending Remains Steady

McGraw Hill FinancialUniversity of Michigan Survey of Consumers


• US GDP came in well below expectation; advanced at 1.2% in Q2 vs estimates of 2.6%

• Consumer spending rose robustly, expanding at 4.2% while business investment weakened.

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-0.9%

4.6%4.3%

2.1%

0.6%

3.9%

2.0%1.4%

1.1% 1.2%

US GDP Annualized Growth Rate

Source: Bureau of Economic Analysis

13. GDP Disappoints in 2Q16


4169

441

72941

76441

79941

83441

86941

90441

93941

97442

00942

04442

07942

11442

14942

18442

21942

25442

28942

32442

35942

39442

42942

46442

49942

53442

569

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$2.15

• Gas prices dropped to $2.15 per gallon in the second week of August, down 18.2% from a year ago. A drop in crude oil prices has driven a 8-week-long decline in costs at the pump.

• Low gas prices continue to curb the inflation rate at a low point.

Sources: Energy Information Agency

Retail Gasoline Prices ($/Gallon)

13. Gas Prices Continue to Decline


• US consumer prices increased for a 4th month straight, rising 0.2% compared with May.

• Americans paid more for housing, gasoline and health care, while the prices for vehicles continued to slump.

Sources: Bureau of Labor Statistics *Not seasonally adjusted

06 07 08 09 10 11 12 13 14 15 16-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%

1.1%

12-Month % Change CPI – All Urban Consumers

13. Inflation Remains Moderate


4.5%

5.5%

6.5%

5.3%

US Annual Personal Saving Rate %

• US personal savings rate dropped to 5.3%, down from 5.5% in May, the lowest since March 2015.

• Consumers are becoming less cautious and save less to finance additional spending.

Seasonally Adjusted as of June, 2016Source: Bureau of Economic Analysis

13. Savings Rate Moves Lower as Consumers Increase Spending


Jul-06

May-07

Mar-08

Jan-09

Nov-09

Sep-1

0Jul-

11

May-12

Mar-13

Jan-14

Nov-14

Sep-1

5Jul-

164.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

4.9%

• US unemployment rate stayed at 4.9% in July, with the labor participation rate climbing 0.1% from June. Total new jobs added was 255,000.

• Strong hiring alleviates people’s concerns from unexpected weak GDP readings and global economic turmoil.

Source: Bureau of Labor StatisticsThrough July 31, 2016 ; Seasonally adjusted

US Unemployment Rate %

13. The Labor Market Stands Firm


Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2.6%

Source: Bureau of Labor StatisticsSeasonally Adjusted as of July, 2016

• In July, average hourly wage for workers in the private sector rose by 0.3% month over month and by 2.6% year over year.

• More accelerated wage growth is projected as employers compete over a diminishing pool of workers in the resilient labor market.

US Average Hourly Earnings for Private Sector: YoY%

13. Wage Growth Is Picking Up


3953

939

69239

84539

99540

14840

29940

45240

60340

75640

90941

06141

21441

36541

51841

67141

82141

97442

12542

27842

430

100

120

140

160

180

200

220

S&P/Case-Shiller 20-City Composite Home Price Index

• The 20-City Composite reported a YoY gain of 5.2%, down from 5.4% in April.

• Despite the unexpectedly cooled US home-price growth, home prices continued to appreciate across the country and sales soared to the highest level since 2007.

Source: McGraw Hill Financial

188.3

13. Housing Market Is Strong


4026

940

36040

45240

54440

63440

72540

81740

90941

00041

09141

18341

27541

36541

45641

54841

64041

73041

82141

91342

00542

09542

18642

27842

37042

46142

552

0

20

40

60

80

100

120

90.0

• In July the University of Michigan Consumer Sentiment Index slowed down to 90.0 from June’s 93.5, down 3.3% year-over-year.

• Concerns about Brexit remained surprisingly high; uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious.

University of Michigan Monthly Consumer Sentiment Index

Through July 31, 2016Source: University of Michigan

13. Consumer Sentiment Slips Slightly in July


Source: Federation of Tax Administrators

2016 2015

Dates Days Days in 2Q Days in 3Q Dates Days Days in 2Q Days in 3Q

Alabama August 5-7 3 0 3 August 5-7 3 0 3

Arkansas August 6-7 2 0 2 August 1-2 2 1 1

Connecticut August 21-27 7 0 7 August 16-22 7 0 7

Florida August 5-7 3 0 3 August 7-16 10 0 10

Georgia July 30-31 2 1 2 July 31- August 1 2 2 0

Iowa August 5-6 2 0 2 August 7-8 2 0 2

Louisiana August 5-6 2 0 2 August 7-8 2 0 2

Maryland August 14-20 7 0 7 August 9-15 7 0 7

Massachusetts N/A 0 0 0 August 15-16 2 0 2

Mississippi August 5-7 2 2 2 July 31- August 1 2 2 0

Missouri August 5-7 3 0 3 August 7-9 3 0 3

New Mexico August 5-7 3 0 3 August 7-9 3 0 3

Ohio August 5-7 3 0 3 August 7-9 3 0 3

Oklahoma August 5-7 3 0 3 August 7-9 3 0 3

South Carolina August 5-7 3 0 3 August 7-9 3 0 3

Tennessee July 29-31 3 2 3 August 7-9 3 0 3

Texas August 5-7 3 0 3 August 7-9 3 0 3

Virginia August 5-7 3 0 3 August 7-9 3 0 3

Total Days 54 5 49 63 5 58

States 17 18

13. Tax-Free Shopping Days Scaled Back This Year• This year, there are nine fewer tax-free shopping days and one less state participating

• Notable changes: Florida reduced the length to three days, down from 10 last year. Massachusetts, facing a budget crunch, is skipping tax holidays this year


• Magic: Las Vegas, Aug. 15-17• JDA & Fung Global Retail & Technology Dinner with The Disruptors:

New York, Sept. 6• Design: Retail Forum, Sept. 22-24• Vanity Capital Conference: Paris, Sept. 26-27• ICSC RECon Asia Conference: Manila, Oct. 11-12• ICSC Research Connections: Austin, Oct. 16-18• Revionics Insight 2016 Customer Conference: Austin, Oct. 16-18• WWD Apparel & Retail CEO Summit: New York, Oct. 25-26• BrandCollective: Sonoma, Oct. 27-28

14. Upcoming Events


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